Bloomberg: Inside Pictet, the Secretive Swiss Bank for the World’s Richest People

Interviews with a dozen people familiar with Pictet’s private-wealth arm reveal a business at a crossroads, confronted with the reality that, in order to stay ahead, Switzerland’s preeminent private bank must adapt. That means embracing more risk and changing the client relationship — away from the concierge-like approach that endured for generations toward a more transactional model. [...]

The challenge facing the partners is that in order to grow, they need to aggressively target Asia, the epicenter of wealth creation. But that requires the embrace of new — and potentially riskier — investment assets, chief among them structured products, which use derivatives to track the performance of an underlying asset. [...]

Suddenly, Pictet was forced to reckon with its haphazard organization that often put personal relationships before a systematic structure. Until then, it wasn’t unusual for bankers to act independently with no uniform approach to clients, for example sending out correspondence using their own fonts and letterheads. Among historic quirks, some employees didn’t have a formal work contract — joining the bank was a social compact with a benevolent patriarchy holding a protective hand over its flock.

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Bloomberg: There's Nothing Exceptional About Any Country

For every commentator declaring the end of a given national exceptionalism, others pop up reasserting it. This seems to be an iron law of history: Every nation at one point or another claims to be superior to others or endowed with a special mission. Exceptionalism, ironically, is universal. [...]

Of the many exceptionalisms around today, one in particular resembles the 19th-century German variety. Russia has long seen itself as a “Third Rome,” following the empires of the Caesars and the Orthodox Byzantines, whose role “Holy Rus” tried to take over. Like the Germans of yore, Russians are sure their culture and soul is deeper than the West’s. As expressed in the thought of scholars such as Aleksandr Dugin, this exceptionalism implies a manifest destiny to rule over an anti-Western “Eurasia.” Putin is said to subscribe to much of this worldview. [...]

The problem is that exceptionalism leads to bad things. The first is hypocrisy. How, for instance, could the U.S. or U.K. ever have claimed to be morally superior when the first English ship carrying African slaves to America arrived in 1619, a year before that other English ship, the Mayflower, brought the Pilgrims to their city upon a hill? And what would either country say if the anti-racism riots of recent weeks — late blowback for that earlier legacy — had taken place in, say, China or Iran? Exceptionalism requires editing a country’s past, and indeed lying.

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Bloomberg: Biggest Danish Pension Fund Targets Climate With Green Product

Denmark’s largest pension fund is offering a new product that gives customers the option of placing retirement savings in climate-focused investments. [...]

PFA Climate Plus will, as a starting point, “emit 60% less CO2 than the MSCI World Index and be completely CO2-neutral in 2025 at the latest,” the pension fund said in a statement. The aim is to have a CO2-negative portfolio by 2030.

PFA said it expects returns to fluctuate in the product’s initial years, because there are fewer assets from which to choose. In the long term, Climate Plus “will have the same level of risk and return expectations as” other market returns-based products.

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Bloomberg: What's Really Warming the World? (June 24, 2015)

What's Really Warming the World? Skeptics of manmade climate change offer various natural causes to explain why the Earth has warmed 1.4 degrees Fahrenheit since 1880. ... These changes have had little effect on the Earth's overall climate.

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Bloomberg: Liberated Saudi Youth Wonder Where All the Wahhabis Have Gone

Today the muttawa are nowhere in sight. What’s visible instead is a younger generation of tech-savvy Saudis fired up by a sense of national, rather than religious, identity. “Saudi identity is us. The Wahhabi identity is not us,” says Mashael al-Baoud, who’s in her 30s. She’s standing behind her display of green crocodile-skin charms in the shape of Saudi Arabia and mobile phone cases embossed with the image of the crown prince or the national emblem, two crossed swords and a palm tree. “They have vanished,” she says. “Since they’re not here, we’re showing who we really are.”

But the contrast with the religiously repressed old kingdom is still dramatic. From cinemas to the lively activity in Riyadh’s King Abdullah Park to a top-floor hookah lounge in Jeddah, businesses have sprung up to cash in on the new tolerance. There’s even talk among some Saudis of the alcohol ban being lifted, possibly before the nation hosts the Group of 20 next year. What comes next depends on whether the economy can make enough strides to meet the expectations of a country where three-quarters of the population, including the crown prince himself, is under the age of 35. While they’re excited by the new liberalization, most young Saudis have one nagging concern: Where have the Wahhabis gone, and what are the chances of them coming back? [...]

And among the young, there are a few who are outright against the changes or worry the kingdom is moving too fast. Saudi Arabia is potentially at the “gates of too far,” says Zaid, the man looking for funding for his sandboarding business. From the eastern city of Dammam, he spent seven years in the U.S. and graduated in chemical engineering before returning home in 2017. “The whole society has loosened up. Loosening up is good, but we don’t want to take it to an extreme. You have to keep your culture.”

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Bloomberg: What If Everyone’s Wrong About China?

Past mistakes about China are too numerous to mention. When it joined the World Trade Organization in 2001, many thought China would liberalize. Since Japan, Taiwan and South Korea had all gone on to become full-fledged democracies after periods of autocracy, the pattern was clear: Once they were fairly wealthy, the growing middle classes demanded a say in their government. At the time, it hardly seemed crazy to believe China might go down a similar path. [...]

Or consider Hong Kong. Not long ago it was practically a cliché that Hong Kong was a territory of apathetic, spoiled wealthy people, not very committed to self-rule or democracy. That too has been shown to be false, as 1.7 million people took the risk of participating last weekend in a peaceful anti-government march. [...]

For myself, I don’t have a coherent story about how the Chinese might move to greater liberty in the next 10 to 15 years. But I do think the actions of the current regime can be read as signs of vulnerability rather than entrenchment. Taiwan and Hong Kong, despite its current crisis, remain strong examples of the benefits of liberalization. Meanwhile, the notion of the internet — even with censorship — as a liberalizing force has been too quickly dismissed, especially in an America that has fallen out of love with Big Tech.

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Bloomberg: Populist Voters Don’t Mind Putin’s Help

As in February, there’s still no evidence that the deal actually took place, that the League received any Russian money or that Salvini even knew about the negotiations. An Italian lawyer, Gianluca Meranda, has since come forward claiming that he’d been present at the meeting and that the transaction hadn’t been completed. And Salvini has said that he’s “never taken a ruble, a euro, a dollar or a liter of vodka in financing from Russia.” [...]

As I’ve written before, European populists are perfectly aware of the toxicity of accepting Russian money in any form. In some countries, Italy among them, political slush funds are not unheard of – but Russian interference in the 2016 U.S. presidential election has drawn so much attention, including from intelligence services, that accepting the Kremlin’s financial aid increases the probability of getting caught. That explains Salvini’s obvious caution – and that of Brexit campaign funder Arron Banks, who apparently turned down offers of lucrative Russian deals. [...]

The League’s polling numbers are on the rise despite the Russia scandal. It’s conceivable that populist voters simply don’t care about the Kremlin scare, either because they’re generally sympathetic toward Russian President Vladimir Putin (who cleverly echoes hard right rhetoric as he seeks allies in Europe) or because they write off media reports of Russia scandals as fake news. The more Russia scandals hatch and pass without consequences, the more the latter perception will be reinforced: one can’t cry wolf too many times. Voters also know these parties have a harder time gaining funding and may simply be willing to ignore such freelancing if it helps their larger anti-establishment cause.

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Bloomberg: Donald Trump Throws a Tax Bomb at Emmanuel Macron

Now U.S. officials have found a new angle of attack: European digital taxes, specifically France’s. The French are about to impose a 3% levy on sales made in the country by tech companies with more than 750 million euros ($845 million) of global revenue. The likes of Alphabet Inc.’s Google and Apple Inc. have been up in arms about what they describe as an unfair tariff on Silicon Valley. And now they’ve been joined by their government, which is starting a probe of the French tax under Section 301 of the U.S. Trade Act, alleging harm against American interests. [...]

While the French initiative certainly has flaws, Paris is also being singled out for political and tactical reasons. Several other countries are introducing a digital tax too, and France would happily ditch its levy in favor of an OECD solution. What’s really motivating Trump’s team is the chance to drive a wedge between the French president Emmanuel Macron and his euro zone partners. Germany has held back from introducing a tech tax of its own, no doubt fearful of U.S. retaliation, while Ireland – whose low corporate tax rates are a magnet for tech giants – has fought hard against the idea. [...]

Zaki Laidi, an international relations professor at Sciences Po in Paris, has called for a “Euro-Pacific Partnership,” bringing together Canada, the EU, and the remaining countries in the Trans-Pacific Partnership. This would support the WTO (which is under siege by the Americans), comply with the Paris climate accords, and reform dispute settlement procedures rather than rip them up. As for tech, an EU or OECD agreement on digital taxes would make more sense than messy national solutions – and would avoid Trump’s opportunistic singling out of individual victims.

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Bloomberg: Turkey’s President Doubles Down After Defeat

You can’t keep a good autocrat down. After his humiliation in the Istanbul mayoral election last month, Recep Tayyip Erdogan seemed chastened. Speaking to legislators of his AK Party, Turkey’s president said, “We don’t have the luxury of turning a deaf ear and ignoring the messages given by the people.”

He since seems to have changed his mind. Notwithstanding an election result that most analysts agree was a vote of no confidence in his management of Turkey’s economy, which is in acute crisis, the president has decided that Turks want more of the same. [...]

Babacan’s defection is potentially the most damaging: he was minister of economic affairs during 2002-07, when he steered the country out of an economic crisis. He is credited with the huge growth that followed. He has been muted in his criticism of Erdogan’s more recent economic policies, but will now feel free to open up. Like Davutoglu, he is thought to be especially critical of Erdogan’s decision to appoint his son-in-law, Berat Albayrak, as treasury and finance minister, a year ago.

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Bloomberg: Russia After Vladimir Putin

The Free Russia Foundation, a Washington-based think tank chaired by former Assistant Secretary of State David Kramer, has just published a 170-page report what the country might look like in 2030. The authors include some of the most insightful anti-Putin commentators today: political analyst Alexander Morozov, media expert Vasily Gatov, economists Vladimir Milov and Vladislav Inozemtsev, social anthropologist Denis Sokolov and energy expert Ilya Zaslavskiy. [...]

Russia will increasingly come under China’s sway. The alliance between the two countries will strengthen, with Russia supplying more raw materials and China industrial goods. The two countries’ extensive military cooperation may be bolstered by their increasing alignment against the U.S. In the most likely scenario discussed in the report, Russia will become a Chinese satellite, boosting its military power and gradually allowing its domestic market to be subsumed. Both Western sanctions and the U.S. confrontation with Beijing make this outcome likelier, despite the domestic unpopularity of such an alliance.

No high-cost military adventures, but watch Belarus and Kazakhstan. None of the authors expect Russia to make any militarily aggressive moves against the Baltic states, but Belarus could be an attractive, and domestically popular, target if Putin wanted to stay in power beyond 2024 as head of a unified state. Separately, the slow leadership succession in Kazakhstan is likely to pose a threat. If the neighboring state chooses to align itself more closely with China or Turkey, it would strip Russia of one of its vaunted security buffers. Thus the report's authors see Belarus and Kazakhstan as more likely targets for Russian meddling than any other country, if only because they are uncertain about Moscow’s true military strength and the potential domestic popularity of armed aggression. Recent victories in Ukraine and Syria were against only weak adversaries. The military remains underfunded, and any losses would likely be extremely unpopular.

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Bloomberg: Can a City Shrink and Thrive? It’s Complicated

Dutch researcher Ellis Delken, for example, compared happiness-survey scores in German cities and rural districts that had shrunk, grown or remained stable in population from 1990 through 2005, and found that residents of shrinking areas were on average happier than those in growing ones. In the U.S., Tufts University professor of urban and environmental policy and planning Justin Hollander looked at “neighborhood quality” scores in 38 big U.S. cities in the 1990s and 2000s from the Census Bureau’s American Housing Survey, and found that while growing cities scored higher than shrinking ones on average, there was a lot of heterogeneity, with residents of several cities that lost population over the study period (Atlanta, Boston, Minneapolis, New Orleans) giving high and rising neighborhood ratings.

Such surveys suffer from the limitation that, as Delken put it near the end of her paper, “the people that have left the shrinking cities did not take part in this study,” but they do indicate that life for those that stay behind can be perfectly pleasant (in the German shrinking cities, people reported being especially happy about public transportation and the standard of living). There are also lots of shrinking cities where those who stay behind are quite affluent: A brand-new article by Maxwell Hartt, a lecturer in spatial planning at Cardiff University in Wales, looks at the 886 U.S. cities with 10,000 residents or more as of 2010 where population had peaked before that year, and finds that 27 percent of them had average incomes higher than those of their surrounding regions. [...]

The next stage for Pittsburgh and Buffalo might be an end to population declines, meaning they would no longer be prosperous shrinking cities. The most oft-cited success story in the shrinking-city literature is probably Leipzig in eastern Germany, which started losing population in the 1930s, lost its industrial base after the reunification of Germany in the 1990s, and was lauded by Harvard economist Edward Glaeser in his 2011 book “Triumph of the City” for its “hardheaded policy of accepting decline and reducing the empty housing stock.” Since then, Leipzig has become the nation’s fastest-growing large city, and is even struggling with a housing shortage. As overall population growth slows, sharp turnarounds like that are presumably going to get rarer. From that perspective, where the Pittsburgh and Buffalo metropolitan areas are right now already looks pretty good.

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Bloomberg: Britain’s a Small Country. Get Used to It.

The United Kingdom of Great Britain and Northern Ireland is a small country that is about to get even smaller. I know that this simple statement of fact will nevertheless infuriate many English people — and I do mean English people, not Scottish, Welsh or Northern Irish. Last week, at India’s Raisina Dialogue, the Spanish foreign minister said that there were two types of countries in Europe: countries that are small and countries that do not know that they are small. Aside from the English, no Europeans in the audience were upset at this plain-speaking. Not even the French. [...]

May has resolutely ruled out another referendum, but this is more than just her failure. After all, even if somehow Jeremy Corbyn’s Labour Party manages to unseat her, Labour’s approach to Europe is as predicated on fantasies as May’s. Corbyn is on record as saying he wants a customs union with the European Union that allows Britain to negotiate its own trade deals; this is, quite simply, impossible. It reflects a notion of British indispensability that nobody outside England shares.

The British can blame no one but themselves. While they’ve never been enthusiastic Europeans, their decision to be the first country to withdraw from the EU is revealing of a basic inability to grasp their vastly diminished place in the world. That they are a member of the United Nations Security Council means little; that reflects merely the power that the British Empire had in 1945, not the U.K.’s power today. Nor is being a nuclear-weapons state much of a big deal any more: Such basket cases as North Korea have the bomb. Most of Britain’s foreign policy influence grows out of its loyalty to the U.S., and Britons’ disproportionate cultural influence derives from the fact that they happen to speak the same language as the world’s sole cultural superpower.  [...]

I write this column from Vienna, an imperial capital grander even than London and one that has also been long without an empire to rule. Austria’s capital, unlike Britain’s, has come to terms with its new status. A profoundly liveable city, it prospers as Western Europe’s bridgehead in the east, and it has an easy pride in its history of intellectual innovation and artistic excellence.

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Bloomberg: Qatar May Be About to Annoy Saudi Arabia Even More

Sheikh Hamad bin Jassim bin Jaber Al Thani, Qatar’s former prime minister, has tweeted that OPEC “is only being used for purposes aimed at harming our national interest.” That goes double for the GCC, where two of its six members — Saudi Arabia and the United Arab Emirates — are prime movers in the economic blockade of Qatar. (The blockade has been going on for 18 months and counting, and it stems from Saudi accusations that Qatar is destabilizing the region by cozying up to Iran, charges Doha contests.) [...]

But here’s the twist: Exiting OPEC, a powerful cartel with a real impact on world affairs, will cost Qatar little, being a minor-league oil producer with little influence on the group's decisions; leaving the GCC, an ineffectual grouping that has little impact on regional affairs, could cost it a lot. If Qatar were to pull out, it would reinforce the Saudi-Emirati claim that the ruling family in Doha is undermining the Arab consensus. Staying in the alliance allows Qatar to signal that it is committed to regional cooperation, putting the onus for ending the blockade on the Saudis and Emiratis.

It is always possible that the Saudis and Emiratis will try to beat Qatar to the punch and kick it out of the GCC. But that would require them to convince Kuwait, Oman and Bahrain, the three other members, to go along. While Bahrain tends to follow Saudi Arabia in most matters, Kuwait and Oman have chafed at what they regard as Saudi bullying, and they have remained steadfastly neutral on the blockade. (The Kuwaitis have said they’d like to see efforts to resolve the “long-standing Gulf dispute” at the summit next week.)

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Bloomberg: Putin’s Saudi Bromance Is Part of a Bigger Plan

Day by day, it becomes increasingly clear that a central fault line — perhaps the central fault line — in world affairs is the struggle between liberal and illiberal forms of government. And as this happens, geopolitical alignments are shifting in subtle but momentous ways. In particular, the bonds between the U.S. and many of its authoritarian allies are weakening, as those countries find that they have less in common ideologically with America than with its revisionist rivals. [...]

In the Middle East, Russia is not simply building its partnership with America’s sworn enemy, Iran. It is also making inroads with U.S. partners Saudi Arabia, Egypt and even Jordan, based on those countries’ perception that Putin’s authoritarian regime can act decisively in support of its friends while avoiding American-style meddling in their domestic politics. Orban leads a country that belongs to NATO, but he has a chummy relationship with Putin and his government is generally perceived to be thoroughly compromised on matters concerning Russia. [...]

A second approach would be to embrace the ideological challenge. The U.S. could double down on its relationships with liberal democracies, repairing core alliances that Trump has damaged and cultivating closer ties with democratic powers from Colombia to India to Indonesia. It might redouble investments in protecting democracy where it is endangered and promoting it — in countries such as Malaysia — where processes of liberalization are underway. It might push its authoritarian allies to be modestly more respectful of human rights and political liberties, using levers such as restricting arms sales or discontinuing military exercises. At the very least, it would make clear that its relationships with those allies are more transactional and less special than those with its fellow democracies.

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Bloomberg: Populism Hits Home for EU Party Papering Over Its Orban Problem

“This resolution is definitely aimed at Orban and is a balancing act in trying to explain why the EPP accommodates an illiberal party within its ranks while confronting populists elsewhere,” said Julian Rappold, an analyst at the European Policy Centre in Brussels. “But this debate won’t go away as long as Fidesz belongs to the EPP.” [...]

The EPP members will choose between two contenders: Manfred Weber, who backed triggering a sanctions mechanism against Hungary but who nonetheless said he supports dialog over punishment for Orban; and Alexander Stubb, a former Finnish prime minister who has said he would expel Fidesz from the EPP if it violated the group’s values. Orban backs Weber, the EPP’s current chairman, in Thursday’s vote. [...]

At the same time, Orban has ruled out trading his seat in the most influential group in the EU Parliament for one in the populist camp before the elections, which might help explain why the party may ultimately sign the anti-populist resolution. Fidesz would sign the text in its present form, according to a party official who asked not to be identified because no final decision has been taken.

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Bloomberg: Murder Puts Brake on Saudi Prince’s Meteoric Rise

One Arab diplomat said Prince Mohammed is beginning to look “dangerous” for western leaders who are now rethinking doing business with a 33-year-old ruler whose loose-cannon foreign policy has surprised allies and enemies alike.

Even his supporters say privately there will now have to be a period of change as Saudi Arabia tries to rebuild the confidence of allies burned by the kind of unpredictability that had been alien to its foreign policy. And, as one senior Arab official put it, the only pressure that counts is American pressure.[...]

“Khashoggi’s murder has given the U.S. greater leverage over Saudi Arabia,” said Kamran Bokhari, senior lecturer on Middle Eastern geopolitics at the University of Ottawa’s Professional Development Institute. “Therefore they are now more receptive than ever before to outside influence over their policies. To what extent the Trump administration will use this opportunity to shape behavioral change remains to be seen.”[...]

“After the Khashoggi case, the task of selling Vision 2030 has become even harder,” Soltvedt said. For investors, the balance between risks and rewards has shifted, he said. “In other words, the risk of reputational damage and negative PR now weighs more heavily.”

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Bloomberg: Poland’s Populists Are Suddenly Vulnerable

The party won a resounding victory when compared with local elections in 2014, based on the results tallied by Oct. 24. It took regions it didn’t control before. But it was clear the share of the vote was down from 2015, when the numbers swept it to power with a record parliamentary majority. Questions are being asked why it couldn’t build on that success. “People realized that Law and Justice isn’t immortal,” says Joanna Mucha, a lawmaker for the opposition Civic Platform group.

Until now, nothing seemed to faze the leadership. A protracted impasse with the EU over a power grab of the independent judiciary and public media and a confrontation with the U.S. and Israel over a law making it a criminal offense to suggest Poland played any role in the Holocaust were met with kudos among supporters. They bought into the narrative of a plucky government standing up for their nation against what the party calls “anti-Polonism.” In April, as relations with allies deteriorated, Law and Justice still commanded an average lead in the polls that was wider than its sweeping victory in 2015. It helped that the economy was—and still is—growing at a healthy clip. That’s because Poland is the biggest net recipient of EU aid, and consumers are enjoying Law and Justice’s increased spending on social welfare such as subsidies for families.[...]

“It’s a clear verdict that the populist revolution is getting weaker,” says Marcin Zaborowski, senior associate at Visegrad Insight, a journal of analysis and opinion focusing on central Europe. “It’s also a personal defeat for Morawiecki, who has been a better, modern face of the party, geared to more centrist voters, and this bid has failed. The result will weaken the position of Morawiecki within the party.”

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Bloomberg: Turkish Outrage Over Khashoggi Hints at Changing World Order

The contrast with U.S. President Donald Trump’s more tepid response -- Trump said Erdogan had been “pretty rough on Saudi Arabia” -- underscores changes in the post-Cold War order, as Washington’s global dominance declines alongside its promotion of so-called values-based foreign policies. It’s also illustrated by the brazen nature of the killing, carried out by officials of one U.S. ally in the territory of another.[...]

Take this Saturday, when Turkey, a North Atlantic Treaty Organization member, will host a summit to discuss the return of refugees to Syria, with Russia, Germany and France. The U.S. won’t be there. Washington has been similarly absent from the main negotiations on ending Syria’s 7-year-old war, which are led by Russia, Iran and Turkey.[...]

Iran, meanwhile, is finding some succor from America’s European allies, as well as from China and Russia as it resists U.S. economic pressure. None has followed the U.S. in withdrawing from the 2015 nuclear deal that lifted economic sanctions on Iran in exchange for restrictions on its nuclear fuel program. In fact, the other signatories are looking at ways to get around the U.S. sanctions due to be reimposed in November.[...]

Yet weaponizing the oil price to harm the U.S. would penalize American efforts to pressure Iran by sanctioning its oil sales -- a core Saudi interest. The Saudi military, meanwhile, is heavily reliant on a sophisticated air force, built around a core of 170 U.S. F-15 and 150 European Tornado and Typhoon planes. Western sanctions that cut off parts for maintenance would be crippling; the Saudi air campaign in Yemen could, for example, quickly stall.

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Bloomberg: German Voters Are Tired of Immigration Politics

Although German states have fewer powers than those in the U.S., state elections are extremely important. They’re where the parties try out electoral platforms, tactics, and alliances, and where national political stars are born. Voters are active: The turnout in Bavaria on Sunday was 72.4 percent, only slightly lower than the 76.2 percent that voted at last year’s national election. [...]

The election proved that Seehofer’s tactics had been a big mistake. With just 10.2 percent of the vote, the AfD did worse than in last year’s national election, when it won 12.4 percent in Bavaria and 12.6 percent nationwide. The CSU lost some 180,000 votes to the nationalist party – but it lost as many to the Greens and almost as many to the Free Voters of Bavaria, another local party with centrist politics and a focus on community affairs. [...]

A moderate stance on immigration and more attention to local affairs and the environment probably would’ve given the CSU a stronger result without undermining the nationwide coalition. As it is, Seehofer in particular comes out of the election weakened, and Merkel must be quietly pleased despite a loss for her allies. Even if Seehofer manages to hold onto the party leader’s job, the idea of fighting the AfD by being more like the AfD is discredited now. The Greens’ compassionate stance on immigration aligned much better with the CSU voters’ values – and with the stance of the Bavarian Catholic Church, for that matter – than Seehofer’s attempts to shove asylum seekers back from Germany’s borders. [...]

One complication for Merkel is that the Social Democratic Party, part of the federal ruling coalition, did terribly in Bavaria. With 9.7 percent of the vote, the once-formidable workers’ party is sinking into irrelevance. Its nationwide polling numbers are dismal: It consistently lags behind the Afd now and is beginning to fall behind the Greens. The latter, with a political program that appeals to millennials and liberal voters in general, have a chance to turn themselves from an environmentally focused party into the biggest center-left force – the slot in the political spectrum that the SPD thought it would own forever. Now the Social Democrats’ string of defeats means they may rethink their participation in the governing coalition; if they do, a new election is likely. Merkel wouldn’t be the conservatives’ uncontested choice to lead the CSU into it.

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Bloomberg: What If Ireland Scuppers Theresa May's Brexit Deal?

If Arlene Foster's Democratic Unionist Party stymies that agreement, it would mark an unprecedented win for what was once a fringe group on the British political scene. But in the long term it could actually promote the very idea the DUP opposes above all else: a united Ireland. While the party supports Brexit, Northern Ireland voted 56 percent in favor of remaining in the EU, well above the national 48 percent remain vote. [...]

Of course, some checks already exist. But she is threatening to vote down the budget this month if she’s unhappy with what May agrees at an EU summit next week. That might not topple the government – but it would make it very tricky to govern, and potentially impossible if hardline Conservative Brexiters also decide to rebel.[...]

Negotiations over inquests into what are referred to as “legacy” issues have repeatedly bedeviled co-operation. More than 100 “peace walls” still separate Catholic and Protestant communities; the plan to remove them by 2023 looks wildly optimistic right now. Efforts to integrate an education system divided along religious lines have faltered. Public-sector housing estates are also deeply divided.[...]

“Neither Sinn Fein nor the DUP truly believe in a settlement based on multiple identities or pooled sovereignty – the kind facilitated by EU membership,” according to Matt O’Toole, a Northern Irishman who was chief press officer for Europe at 10 Downing Street during the referendum campaign. “Both now want to achieve something from Brexit that is less of a compromise than what existed before.”

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